In last week’s trading, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) resumed uptrend lifted by key plantation heavyweights following a rally in crude palm oil prices. Bursa Malaysia shares were also buoyed by events in the US where major indices surged to new record highs over the week, as increased export restrictions for American chipmakers to China led to bargain hunting interest in local technology stocks. The FBM KLCI then took a dip as the political turmoil in South Korea and France weighed on market sentiment ahead of the weekend.

Week-on-week, the FBM KLCI gained 18.96 points, or 1.19 percent to 1,613.25, as gains on YTL Power (+33sen), YTL Corp (+17sen), Press Metal Aluminium Holdings (+32sen), Petronas Dagangan (+RM1.04) and SD Guthrie (+12sen) outweighed dips on RHB Bank (- 25sen) and Genting Malaysia (-11sen). Average daily traded volume last week improved moderately to 3.24 billion shares versus 2.99 billion shares the previous week, while average daily traded value fell to RM2.91 billion, against the RM3.36 billion average the previous week, as trading participation on key index heavyweights decreased.

Continuous buying support from the local institutional funds lifted the benchmark FBMKLCI to above 1,600 level last week despite sustained net selling pressure from foreign funds that hit RM1.77bn in October before surging to RM3.1bn in November, post the US presidential election and nuclear scare from Russia. The net selling amounted to RM617.5mn in the first four trading days of December, which added up to a year-to-date foreign net outflow of RM1.94bn or USD444mn. This is not as severe as compared to Thailand’s -USD3,818mn but worse than Philippines’ -USD331mn and Indonesia’s net inflow of USD1,544mn.

We expect local funds to continue absorbing the selling pressure from foreign funds and keep the benchmark index above 1,600 level ahead of the year-end closing while investors await key inflation data from China and US, besides trade numbers from the former. Local funds support aside, we need to see strong growth in corporate earnings and profitability to draw investors apart from good governance, sustainable development and good government policies. Recall that business efficiency was the weakest link for Malaysia in the IMD World Competitiveness Ranking where Thailand and Indonesia improved significantly and forged ahead. Point to note is that, with the upcoming constituent changes to the FTSE Bursa Malaysia KLCI on 23 December, our projected earnings for the index components will drop by 1.1% and 0.6% to RM71.2bn and RM76.9bn in CY24 and CY25, respectively. Thus, there is a need to close the earnings gap left by Genting and Genting Malaysia by stepping up productivity, efficiency, innovation and upskilling employees.

Continued weakness in China’s producer and consumer price indices will paint a bleak picture about the nation’s ability to address the deflationary pressure after the recent policy manoeuvres. The threat to external trade is another near-term risk with Donald Trump officially assuming the US presidency on 20 January. Thus, both the inflation and trade data today and tomorrow, respectively will set the tone for China’s annual economic work conference later this week, which will set the economic agenda for 2025. While no major announcements will be made until the National People’s Congress meets next March, investors will be hoping for some hints from this conference, especially on how the government will boost consumption and revive the property market amidst high localgovernment debts. Besides, people are also curious to find out how China will continue its technological advancement and address the rising threat from the West.

As for the US, a revival in its nonfarm payroll data for November allayed worries about cooling labour market and economic weakness. It rose at a faster than expected pace of 227,000 versus the 200,000 estimates of economists polled by Reuters and 36,000 in October, after being severely constrained by hurricanes and strikes. While it is not expected to come in the way of a widely expected Fed easing next week, the November CPI data could take the wind out of the sails if it turns out to be much stronger than expected 2.7% or the previous month’s 2.6%. A cut is positive for financial markets and should contribute to a sustained recovery in FBMKLCI as the year-end approaches with selective buying interest in blue chips, especially the mostly undervalued banks and power & utilities stocks.

Source: TA Research - 9 Dec 2024